ECB’s de Guindos: ‘Increases of 50bp May Become the New Norm in the Near Term’

22 December 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank rate hikes of 50bp may be the standard move over the short term, ECB Vice President Luis de Guindos said Thursday.

In an interview with French daily Le Monde, de Guindos said that ‘increases of 50bp may become the new norm in the near term.’

‘Second, we should expect to raise interest rates at this pace for a period of time’ he continued. ‘And third, our interest rates will then enter into restrictive territory. The steps we have taken so far are going to have an impact on inflation, but we still need to do more.’

Although there was no wage-price spiral ‘at the moment’, the ECB had to safeguard its credibility and prevent a disanchoring of expectations, he said. ‘If households start thinking that the ECB is not doing enough, and they expect inflation to be 7% or 8% over the next three years, they would then ask for a pay increase of 7% or 8%, triggering the spiral’, he said. ‘This would mean that we would have lost our credibility.’

Indexation of wages to inflation was ‘a rising trend’, he warned.

The latest revisions to the ECB’s macroeconomic projections include ‘substantial change’ with respect to the inflation outlook, he said. Whilst inflation will subside to around 7% by mid-2023, this still clearly exceeds the ECB’s target, he said. ‘We have no choice but to act.’

As for growth, ‘we are perhaps in negative territory, but not very deep, with GDP expected to contract by 0.2%’ in the current quarter, he said. However, leading indicators were ‘not good’, leading to the expectation of a mild recession this and next quarter, he said.